F-Prime on Fintech in 2018: Blockchain Apps, A.I. Interfaces, Crypto Rules

For the financial technology sector, the year’s headlines were dominated by breathless blockchain hype, cryptocurrency bubble talk, and a never-ending barrage of initial coin offerings.

To help put things in perspective—and get a read on what might come next in fintech—Xconomy caught up with David Jegen (pictured), a Boston-based partner with F-Prime Capital, who invests in early-stage enterprise IT and fintech companies. The following are highlights from our recent e-mail exchange, lightly edited for clarity.

Xconomy: What’s your biggest takeaway from 2017 in the world of blockchain and cryptocurrencies?

David Jegen: 2017 was the year cryptocurrencies went mainstream. The core early adopters never lost faith, and large financial institutions steadily conducted pilots and pushed forward. But clearly the mass market embraced it, and, well, CNBC can’t stop talking about it.

X: What are your predictions for how blockchain tech and the cryptocurrency sector will evolve in 2018?

DJ: People often ask what is the “killer application” that will cement blockchain as a foundational technology. The Internet had e-mail. What does blockchain have?

I think we’re beginning to see the answer to that with bitcoin as a “store of value.” 2017’s mainstream adoption of bitcoin and $600 billion-plus market cap across all digital currencies are evidence of that.

In 2018, we will see two other vectors take shape and further cement blockchain technologies and cryptocurrencies.

The second vector involves blockchain as a new database architecture. Working with blockchain startups like Axoni, large financial institutions like the DTCC and NEX TriOptima will launch the first large-scale deployments of blockchain technologies, re-platforming the mainframe systems that run hundreds of millions of trades onto new, blockchain-based databases.

The third vector involves the decentralized application ecosystem. This has the potential for the greatest impact and could usher in the next 15-year cycle of technology refresh from the current cloud-plus-mobile IT paradigm to a decentralized network-plus-A.I.-based paradigm. Initiatives like Filecoin and Golem, which have together raised $265 million-plus via [initial coin offerings], illustrate how new token-based, decentralized networks could leverage Ethereum to create completely new models for buying storage and compute—a truly new rival to [Amazon Web Services].

X: Will we see more regulations of ICOs and cryptocurrencies in 2018, both in the U.S. and elsewhere?

DJ: Yes, absolutely. The U.S. [Commodity Futures Trading Commission] and SEC will be far more aggressive and clear in their enforcement of existing rules and in writing new regulatory frameworks for cryptocurrencies. We’ll see new trading venues and new financial product approvals.

X: What types of financial technologies fell out of favor with investors in 2017, and why?

DJ: Lending continued its slide out of favor. Numerous personal financial management apps appeared, but with tepid interest from investors, given questions about their long-term business models. Digital advisors continue to grow, but investors have largely placed their bets and are now hoping the first breakouts can cement themselves as major new financial brands, before incumbents fully react with me-too products.

X: What areas of fintech will see the most venture capital investment in 2018?

DJ: Insurtech [insurance technology] may plateau, but will still receive a lot of investment. Crypto will get a renewed surge. A.I. plus financial services will take real shape, mostly as an embedded technology, but increasingly in the user interface. Embedded payments will continue to penetrate new verticals. The consumerization of healthcare will look more and more like the fintech world, drawing in fintech investors who understand the electronification of transactions, data aggregation, and embedded payments.

[Editor’s note: F-Prime has invested in blockchain companies Axoni and TradeBlock; lending tech companies Prosper, Blispay, and Even Financial; wealth management firms Vestwell and FutureAdvisor; payments companies Flywire, Toast, and Recurly; and insurtech firms Snapsheet and Stride Health.

This article is part of a series of posts sharing thoughts from technology leaders about 2017 trends and 2018 forecasts.]

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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